U.S. inflation slowed for a fifth consecutive month in November, data from the Bureau of Labor Statistics indicated Tuesday, sparking hopes of a pivot in the Federal Reserve's rate plans and trigger another massive move higher for U.S. stocks.
The headline consumer price index for the month of November was estimated to have risen 7.1% from last year, down from the 7.7% pace recorded in October and well south of the Street consensus forecast of 7.3%.
On a monthly basis, inflation was up 0.1%, the BLS said, compared to a 0.4% reading in October. Street forecasts had projected a 0.3% acceleration.
So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.2% on the month, and 6.0% on the year, the report noted, with both the annual and monthly reading coming firmly below Street forecasts.
Inflation was terrible in 2022, but the outlook for 2023 is much better. Supply chains are working better, business inventories are higher, ending most of the shortages that fueled inflation in 2020," said Bill Adams, Chief Economist for Comerica Bank in Dallas. "If inflation continues to fall, the Fed will probably be able to start reducing interest rates in the fall of 2023. But that process is expected to be very gradual since the Fed doesn't want to be caught offsides by a too rapid reacceleration of the economy fueling a rebound of inflation.
On Wall Street, U.S. stocks reacted sharply to the softer-than-expected readings, with the S&P 500 rising 90 points in the opening hour of trading while the Dow Jones Industrial Average gained 430 points. The tech-focused Nasdaq was up 343 points.
Benchmark 10-year Treasury note yields fell 12 basis points to 3.441% while 2-year notes dropped 17 basis points to 4.179%. The U.S. dollar index, which tracks the greenback against a basket of its global peers, fell 1.24% to 103.83.
The CME Group's FedWatch is pricing in an 86.6% chance of a 50 basis point Fed rate hike tomorrow in Washington, up from 72.5% prior to the data release, with just a 13.4% chance for a fifth consecutive 75 basis point hike.
